ChatGPT's Choice - High ROI Investment Strategy - blending AI and human expertise
Delve into the fascinating process of crafting this AI-driven strategy in our comprehensive blog article: https://www.simfin.com/en/blog/can-chatgpt-replace-a-stock-screener/.
This initiative marked our pioneering effort to integrate AI in the filter selection and value determination process, aiming to assemble a high ROI portfolio. Despite initial results yielding average performance, we viewed it as a learning opportunity. Through strategic refinements, we successfully enhanced the strategy's effectiveness, culminating in exceptional backtest returns. You can find the final investment criteria, which underpin this successful revision, detailed in the description below.
Chosen Stock Filters
Our stock selection process of the ChatGPT's Choice Strategy involves a three-step procedure, starting with an industry filter, followed by a series of scoring indicators, and finally a total score filter. This is the screenshot of the filters in the SimFin stock screener:
Here are the steps descibed in detail.
Step 1. Industry Classification Filter: We focus solely on technology stocks, excluding all others from our portfolio.
Step 2. Scoring Indicators: We apply six unique scoring indicators to each technology stock, including:
Growth Rate of EPS: If the EPS growth rate over the past year is higher than 15%, the stock scores 1; otherwise, it scores 0.
Growth Rate of Revenues: If the revenue growth rate over the past year is higher than 20%, the stock scores 1; otherwise, it scores 0.
Return on Equity: If the ROE is higher than 20%, the stock scores 1; otherwise, it scores 0.
Price to Earnings Ratio: If the PE ratio is lower than the median of all companies, the stock scores 1; otherwise, it scores 0.
Dividends per Share: If the DPS is higher than 2, the stock scores 1; otherwise, it scores 0.
Market Cap: If the market cap is higher than $1 billion, the stock scores 1; otherwise, it scores 0.
Step 3. Total Score Filter: Only stocks with a total score above 3, after applying the six scoring indicators, are included in our portfolio.
Strategy Intent
The core intent of our strategy is to leverage the high-growth potential and innovation-driven nature of the technology sector to achieve high ROI. By applying stringent filters and scoring criteria, we aim to select only the most promising tech stocks for our portfolio.
Opportunities
Our strategy opens up opportunities to benefit from:
High-Growth Potential: Technology stocks often exhibit higher growth rates than stocks in other sectors.
Innovation-Driven Gains: Tech companies are at the forefront of innovation, which can drive substantial stock price appreciation.
Diversification: Even within the technology sector, there's considerable diversity in terms of subsectors and types of companies.
Risks
Potential risks include:
Sector Concentration: Focusing solely on technology stocks could increase vulnerability to sector-specific risks.
Volatility: Tech stocks can be more volatile than stocks in more traditional sectors.
Valuation Risks: Tech stocks often trade at high multiples, which can increase the risk of overvaluation.
Backtest Result Presentation
The ChatGPT's Choice strategy was backtested over a decade from April 2013 to March 2023. The results were compelling, with our strategy generating a potential compound annual growth rate (CAGR) of 15.42% compared to a CAGR of 9.59% for the S&P500 benchmark.
Conclusion
In summary, "ChatGPT's Choice - High ROI Investment Strategy" is a sophisticated, potentially high-return investment strategy. It meticulously blends AI recommendations with human expertise to select the most promising technology stocks based on stringent filters and scoring criteria. Despite focusing solely on one sector, the strategy offers considerable diversification potential within the technology domain. The backtested results, demonstrating a calculated CAGR of 15.42% over a decade, provide compelling evidence of the strategy's potential effectiveness.
The strategy was created using the Stock Screener tool from SimFin and was subjected to backtesting. Details on the quantitative criteria and the backtesting results can be viewed in detail here: https://app.simfin.com/portfolio/64286a2ba179b0713b8d1e6b
Disclaimer: This document and the information provided herein is for informational purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to purchase or sell any securities. Investors are advised to do their own research and consult with a qualified investment professional before making any investment decisions.
Investing in securities involves risks, including the potential loss of all amounts invested. Past performance is no guarantee of future results. The stated backtested results are based on historical data and may not predict future performance. This strategy and its proposed investments are subject to change without notice, and we do not have any obligation to update the information herein.
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